Chipotle Mexican Grill‘s (NYSE: CMG) upbeat year continued in its third quarter, with the company handily beating consensus expectations on earnings, but missing slightly on revenues. Shares of the company jumped in the aftermath, given the strong performance, as well as CEO Brian Niccol’s plan to institute measures to improve the company’s image. Comparable sales improved 4.4%, short of expectations of a 5% growth, which together with 28 new store openings helped to drive the 8.6% revenue increase. This positive performance aided in the restaurant level margin expansion of 260 basis points. We expect these strong trends to continue in the fourth quarter as well. However, given the fact that the company will be lapping price increases in about 1,000 restaurants in November, it will be a headwind to its overall Q4 comp by about 100 basis points. Chipotle continues to expect comparable sales to grow in the low-to-mid-single digits, and expects to open restaurants at the low end of the prior range of 130 to 150 locations this year. Looking ahead to 2019, Chipotle expects 140 to 155 new restaurant openings.

1. CEO Change: Brian Niccol joined CMG as its new Chief Executive Officer, effective from March 5, 2018. Niccol comes from Yum! Brands where he was the CEO of Taco Bell. He was instrumental in implementing a successful turnaround of that business. Niccol comes with strong expertise in digital technologies, restaurant operations, and brand building, and these skills are crucial for Chipotle’s turnaround.

2. Accelerating Digital Sales: This is the fastest growing part of CMG’s business, with annualized digital sales exceeding $0.5 billion. This segment reported growth of 48% in the third quarter, and now represents 11.2% of the total sales of the company. By the end of 2018, CMG intends to accelerate the rollout of its digitally-enabled second make-lines to 1,000 restaurants, from 750 currently. These new lines enable a faster, and a more accurate experience for the digital customers, and allows CMG’s staff to more easily support the higher sales volumes. The company’s ‘Digital Pick Up Shelf’ initiative, which is now in 350 restaurants, not only provides a faster and a more convenient experience for mobile pick up orders, it also serves as an in-store marketing tool to raise awareness among its customers that they don’t have to go through the line to pick up their orders.

3. Adding Catering and Delivery: Catering forms roughly 1% of the total sales, and is a largely untapped opportunity for the company. CMG has expanded its delivery availability to 1,800 restaurants, and expects to reach 2,000 by the end of the year. The company has noted that mobile and delivery orders are in that $16 to $17 range, while the traditional check is roughly $12. Since the company’s delivery sales continue to grow at a fast pace, CMG intends to expand the number of delivery partners it works with.

4. New Restaurant Openings: CMG opened 28 new restaurants in Q3 and expects to be at the lower end of its 130 to 150 new openings guidance for the full year. Moreover, the company has plans for a higher number of openings for 2019, as mentioned earlier. New restaurant openings can have a significant positive impact on the company’s revenues. Meanwhile, the company is also in the process of closing 55 to 65 underperforming restaurants.

5. New Menu Items: The company is also testing a number of menu items in order to build a pipeline for future years. These include quesadillas, nachos, bacon, lemonade, and a Mexican chocolate milkshake, and limited time offers such as chorizos.

What’s behind Trefis? See How It’s Powering New Collaboration and What-Ifs

Led by MIT engineers and Wall Street analysts, Trefis (through its dashboards platform dashboards.trefis.com) helps you understand how a company's products, that you touch, read, or hear about everyday, impact its stock price. Surprisingly, the founders of Trefis discovered...